IDC: Worldwide Server Revenues Sluggish but Still Up

Worldwide server revenue grew year over year again in the third quarter according to International Data Corp. (IDC), marking the seventh consecutive quarter of revenue growth. But while revenue was up, IDC said it was also the slowest quarterly growth rate since first quarter 2010.

Agreeing with an earlier analysis by Gartner, IDC said Asia/Pacific drove much of the growth while other regions were flat or lagged.

"After nearly two years of steady revenue growth, the server market began to decelerate in Q3 2011 as demand stabilized for many system categories," said Matt Eastwood, group vice president and general manager of Enterprise Platforms at IDC. "Asia/Pacific and Japan exhibited strong revenue growth while server demand in EMEA, North America and Latin America was flat to slightly down year over year. IDC continues to believe that weakening macroeconomic conditions around the world will serve to further moderate demand for new servers in 2012."

Gartner's analysis also pointed to Eastern Europe as a bright spot for vendor revenue.

IDC said IBM was the big winner among the top five global vendors, picking up 3.5 percent year-over-year growth in factory revenue for the third quarter of 2011 -— much of it based on Power Systems demand -- to catch up with troubled rival Hewlett-Packard in a tie for first place in the worldwide server market. While IBM (NYSE:IBM) gained, HP (NYSE:HPQ) lost 2.5 points of share in the same period with a factory revenue decline of 3.8 percent year over year, which IDC largely attributed to weakening demand for Itanium-based Integrity Systems. That left both with 29.8 percent factory revenue share for the quarter.

Dell remained comfortably ensconced in third place, picking up 1.2 points of share on 13.1 percent revenue growth, which IDC said was driven in part by richer product configurations. That left Dell (NASDAQ:DELL) with 15.1 percent of factory revenue market share.

Oracle and Fujitsu's fourth and fifth place rankings, respectively, remained unchanged. However, IDC said both experienced revenue declines in the period. IDC said Oracle's (NASDAQ:ORCL) year-over-year revenue dropped by 3.2 percent in the quarter, giving it 6 percent market share, while Fujitsu's factory revenue declined by 0.4 percent, leaving it holding 4.8 percent revenue share.

IDC said demand for Linux servers, Microsoft Windows servers and Unix servers were all up, but demand for mainframes was down.

The firm said strong x86 server deployments buoyed Linux server demand, with an increase in hardware revenue of 12.3 percent in the third quarter of 2011 to $2.3 billion over the same period in 2010. Additionally, IDC said Linux servers now represent 18.6 percent of all server revenue, up 0.9 points from the year ago quarter.

Meanwhile, Unix servers recorded 1.6 percent revenue growth to $2.6 billion to grab 20.1 percent of the quarterly server revenue. IDC called out IBM, which grew its Unix server revenue 14 percent year over year and picked up 5.1 points of Unix server market share compared with the year ago quarter

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But while IBM's fortunes were on the rise in Unix servers, it also saw its mainframe revenue growth tumble, shattering a streak of four consecutive quarters of growth. IDC said revenue for System z servers running z/OS dropped 4.5 percent year over year to $970 million, representing 7.6 percent of all server revenue in the quarter.

The blade server market was one of the strong winners in the third quarter. IDC said factory revenue for blade servers increased 16.4 percent year over year, and shipment growth rose 2.4 percent compared with the year ago quarter. Overall, blades represented 16 percent of quarterly server market revenue.

"Blade systems represented the fastest-growing segment in the server industry and now account for 16 percent of total server revenue—a historic high," said Jed Scaramella, research manager for Enterprise Servers at IDC. "Blades are a key element of convergence that integrates server, storage and networking to simplify complexity. Customers are supplementing their blade platforms with automation and resource tools to create an agile IT environment and speed deployment times."

The x86 server market saw its eighth consecutive quarter of factory revenue growth in the third quarter of 2011, with 6 percent growth to $8.7 billion worldwide. IDC said unit shipments were up 4 percent to a total of 2 million servers. It was also the tenth consecutive quarter of year-over-year increases in average selling prices for x86 servers.

"With the x86 server market recovering from the economic recession for almost two years now, there are fewer server refreshes than a year ago," said Reuben Miller, senior analyst for Enterprise Servers at IDC. "The x86 market continues to experience positive growth, but with a decrease in refreshes from a year ago, annual growth rates for both unit sales and revenue have begun to level off and resemble rates prior to the recession.

IDC said HP continued to lead the x86 market with 35.8 percent revenue share, but that represents a 2.2 point share loss in the quarter. Its year-over-year revenue from x86 servers was down 0.2 percent. Dell kept its second place slot in x86 servers with 22.1 percent revenue share, up 1.4 points of share on 13.1 percent year-over-year revenue growth. IBM increased its x86 server revenue by 0.8 percent and now holds a 17.7 percent revenue share.

IDC also began tracking a new form factor of server in the quarter, which it calls hyper-scale servers. Hyper-scale servers are new servers designed for large-scale datacenter environments with a large number of parallelized workloads. IDC said hyper-scale server demand grew 8.7 percent year over year in the third quarter of 2011 to $428.5 million. The research firm said hyper-scale servers now represent 3.4 percent of all server revenue and 5.7 percent of all server shipments.

Thor Olavsrud is a contributor to InternetNews.com, the news service of Internet.com, the network for technology professionals.